Opinion

Do annual shareholder meetings matter?

The View From Taft Benito L. Teehankee

Posted on February 09, 2017

In his book A Weekend with Warren Buffet: And Other Shareholder Meeting Adventures, Randy Cepuch, a 30-year writer of mutual fund annual reports and other financial publications, shared a humorous travelog of his attendance in 22 annual shareholder meetings (ASMs), including that of Berkshire Hathaway, Walt Disney, eBay, Google, and Microsoft. Cepuch’s goal with the book was to help investors understand the companies that they partly own through the way these companies conduct ASMs.

Cepuch first attended the Berkshire Hathaway ASMs in Omaha, Nebraska, in 1999. During the meeting, he learned so much from CEO and investment guru Warren Buffet that he considered his attendance a personally transformational event. Buffet famously advised against investing in companies that one didn’t understand, such as obscure technology stock. Thus, Cepuch sold most of his technology stock and reinvested the money in blue chip companies. The Internet bubble burst shortly thereafter, and Cepuch did quite well. He has since made attending ASMs part of his regular investment research activities.

Why do ASMs matter?

As Cepuch narrates, curious and attentive investors can learn much from these meetings, especially if they are run well. By listening to the presentations, asking managers and fellow attendees, and even asking questions on the floor, they can get answers to the following questions: How is the company doing? Is the external auditor credible enough to do a good job? Where is the company headed? How is the company preparing itself for business risks in the horizon? All of these questions can help investors answer the fundamental question: Should I buy, hold, or sell?

Stephen Percoco, editor and publisher of Income Builder, an investment newsletter, explains that ASMs are “the only regular forum where shareholders can meet and ask questions of members of the Board of Directors and the auditors.” Thus, shareholders must take ASMs seriously since corporate and securities laws give them important rights as equity owners.

While all shareholders are in spirit co-owners of a corporation, they may not be treated that way. This is because the corporate system is not democratic (it doesn’t follow the one-person, one-vote principle of other types of organizations). Instead, we have a plutocratic system (one share equals one vote). Furthermore, a handful of people and other corporate entities own majority of the shares and therefore control what ultimately happens in the company.

Still, responsible minority shareholders must exercise due diligence in keeping themselves informed of the goings-on lest they be caught flat-footed by dishonest or negligent directors, managers, and auditors. And ASMs are an important venue for performing this diligence. Since they do not have control, their aim in the meeting would be information and dialog.

Many observers criticize the “scripting” of motions and approvals, saying that this hinders real discussion. Others complain about the board’s lack of transparency with respect to acts for approval, choice of auditor, and company risks.

Regulators and advocacy groups have been trying to improve ASMs, especially for minority shareholders. A leading advocate is the Shareholders Association of the Philippines (SharePHIL). SharePHIL is invested in almost 50 publicly listed companies. Its representatives attended more than two dozen ASMs (à la Cepuch) last year as part of its four-year effort to work with companies to improve the meetings.

A case in point is Meralco. (Disclosure: SharePHIL, where I serve as Trustee and Chair for Research, and University of San Carlos, where I serve as Trustee, own shares of Meralco.) When I attended the electricity distribution company’s ASM in 2015 on behalf of SharePHIL, I saw an earnestly run event that nonetheless left room for improvement for minority shareholders. The long lines and harassed registration personnel made me feel lost and unimportant. And as the SharePHIL representative, I let them know.

Happily, Meralco’s May 2016 ASM improved remarkably. I found it one of the friendliest I had ever attended. The company added a registration concerns table and a registration table for handicapped stockholders in addition to its usual customer service and media desks. A member of the Meralco compliance team and representatives from key offices served in a separate stockholder concerns booth to attend to dividend inquiries, changes of address, account updates, stale/lost checks, and other concerns. These are just some of the process improvements that convinced me that they had spared no effort to attend to minority shareholders.

Fewer than 1% of Filipinos invest in the stock market. For this number to go up, prospective investors have to be convinced that companies can be counted on to be transparent, fair, and accountable. One way of doing this is to make shareholders feel welcome and appreciated at ASMs.

Benito L. Teehankee is a professor of management and organization at De La Salle University. He is chairman of the Research Committee of SharePHIL, and vice-chairman of the CSR Committee of the Management Association of the Philippines.